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Dropshipping Is Dying (Industry Update)

Published on: December 4 2022 by Hayden Bowles

Dropshipping Is Dying (Industry Update)

Dropshipping Is Dying (Industry Update)

all right so check this out drop
shipping is
dying this is not some click bait this
is just the truth this is what's
changing inside of the industry and it's
for a couple of great reasons
number one kovit has definitely
definitely changed a lot of things and
as you're going to see in this video
with what i'm going to explain to you
that is definitely a huge huge impact
also on the other side
i categorize this group of people as
just idiots who have
ultimately somewhat ruined the
marketplace for
drop shipping now obviously e-commerce
is not going anywhere
drop shipping for those of you excuse me
those who don't know
is a pretty interesting sub category
inside of e-commerce
so i got started it's something where
you know you can still do it the right
way but the traditional drop shipping
which is where you source
products off of aliexpress or from some
random sourcing agent
and you don't pay for the product until
your customer does
usually that dynamic is actually leading
to some problems for a lot of people so
we're gonna explain that i'm gonna try
and keep this video as short as possible
however just understand there are still
ways to do drop shipping very
successfully
and of course drop shipping is a great
entry point because of the low startup
cost it's basically zero dollars except
for your advertising
expense so it's a great way to start
inside of the e-commerce space
learn a great skill such as facebook ads
or google ads or however you want to do
your marketing
and get capital coming in then once it's
working you found your winning product
you can start ordering inventory you can
brand the product or do whatever it is
you would like to do so if you want to
learn more about that learn the facebook
ad strategies that helps myself and
hundreds of students
not only dropship but also do e-commerce
make sure to check out some of the
resources
linked in the description below so
without further ado let's jump inside
here it's two super simple things
but uh it'll kill you if you definitely
don't have a good grasp on this so
let's go through it all right
unfortunately what i'm gonna be sharing
with you uh
is not quite sexy it might not be the
most interesting thing but it's actually
something that probably gets the least
amount of attention in terms of people
toking about it and in terms of people
who actually do e-commerce
thinking about it now those of you who
are big maybe you make a lot of money
inside the e-commerce space you've been
around here for a while
you'll understand this component but a
lot of people get started
it's not really a topic that's toked
about in a huge way so i want to shed
some light on this for you
that is the payment processing side of
things specifically
your history so the reason that drop
shipping can create a lot of problems
is it's typically viewed again this is
not always the case with drop shipping
even one of my main brands is still in
theory
drop shipping because i don't have to
pay for the inventory up front
but the typical way where it's you know
a month shipping and then you have poor
customer service and everything is just
set up like crap
that's going to create problems and
let's tok about why so
the short term is the long term nowadays
when it comes to payment processing
a lot of people don't pay attention to
this and the problem is i keep seeing
people dming me
hey i got shut down by stripe i got shut
down by paypal i got shut down by bank
of america
what do i do what what processor should
i use well i
can't guide you with that question and i
seriously get it five to ten times a day
and people get mad that i don't
recommend a payment processor the reason
for that is if you had a bad
situation happen and now your payment
processing history which
don't kid yourself a new processor can
see
well why would they approve your
merchant account they won't
so now you're gonna have to get another
signer on another llc
and have someone else be the name on it
and that's a risk that's a problem
and you know it's really sad at the end
of the day so you have to avoid this
and tok about some ways to kind of
creatively get around it but just keep
an open mind here
volume is important to dilute any
possible disputes okay it really only
takes a few
to screw you up so what do i mean by
that let's say your
shopify store is doing a hundred orders
a month you're doing three to four
sales a day you're getting started
you're new congratulations you got 100
orders coming in that's cool
right you're starting to learn you're
starting to get the ball rolling but
out of those hundred people if your drop
shipping your shipping time is two and a
half weeks maybe it's even worse right
now with covid
i'm sure your customer support might not
be the best maybe you forget to reply to
some emails
blah blah blah blah whatever happens the
product quality is not great
well what's the likelihood of two or
three of those people doing a chargeback
well it's it's not unlikely you know
especially if you don't have a good
system down for everything
those two to three people can take down
your entire business in a day
you know and so that's what people have
to recognize is
this industry standard for payment
processing is one percent threshold
which means for every 100 transactions
you have
you cannot have more than one dispute or
chargeback
and payment processors actually look at
your refund rate as well so if you're
refunding a lot of people they factor
that in
if you're not refunding a lot of people
that can can counteract against you
actually in a negative way
so just just keep this in mind so you
need more sales you need more
volume to dilute those couple you're
always going to have a couple of
disputes here there
for an example on one of my stores where
i do about
60 000 to 90 000 transactions every
single month
well we still usually have about 100
disputes it still happens
so out of the three disputes on average
that we get a day
in terms of about 2000 to 2900 orders on
average
i mean it's a smaller amount
percentage-wise we have our system down
but don't kid yourself our payment
processor my payment processor
that's obviously not my company the one
i use is still on my ass
about those chargebacks so here's what
happens the key and this is why i don't
like shopify payments stripe is shopify
payments um
paypal is not a good option as well it's
good to have but you'll probably run
into issues at some point if you have
any sort of disputes well the thing is
to really build a relationship with your
payment processor
this could mean you like if you let's
say you have a bank of america account
right you're in the u.s
and you open a payment processor through
them be a
present person inside of that bank
branch wherever you opened it
start to know all of the people inside
of there spend two to three days a week
going in and asking a question or just
become a familiar face it's always going
to work in your benefit
because when you have a problem they'll
reach out to you you got a little bit of
rapport built
and they might let you be able to slide
for a few months as long as you have a
couple of these things
some payment processors will let you
write out a plan and send it to them
on how you plan on bringing your charge
back right down
now of course if your chargeback rate
continues to become a worse problem and
it balloons throughout that time frame
they'll probably just shut you down and
some might just shut you down right away
regardless
especially if you cross that one percent
but you know there's also high risk
payment processors where you can pay a
lot more on fees and you can go up to
three four percent if you really want to
but uh you know just it's more expensive
so that's why drop shipping can create a
problem because let's say you have one
drop shipping store it's your first
crack at e-commerce
something goes wrong whatever you know
you don't know you're learning right
it's not that big of a deal but it truly
can become a problem
well now let's say fast forward a year
you wanna you're starting a brand you're
working with someone you go to get a
payment processor
they ask for your payment processing
history you send them a copy of
something and it shows some pretty
aggressive numbers in terms of
chargebacks and things not going too
well
well they're a lot less likely to
approve you and so i see this happen
where people maybe not even at your own
fault
a payment processor gives you some crap
and some issues for
hey you know what's going on with your
chargeback rated to the 1.6
and in reality it wasn't your fault your
supplier screwed you over i've seen that
happen
i've actually had i've toked about it
before just not in depth because i don't
want to get into it but earlier this
year i had a supplier that i sent
millions of dollars to screw me over
out of thirty two thousand dollars
that's 32 which is
a drop in the bucket i mean the store
was doing three times that a day in
sales
consistently and they screwed me over
and i lost millions and millions and
millions probably tens of millions of
dollars in sales
and so it screwed up all i mean
everything across the board
you know so one component can truly
affect everything if you have a supplier
issue
boom payment processor ad account
problems
right so you just have to be cautious
with that pay attention to your shipping
times
understanding your payment processing
history which is becoming a lot more
strict
you have to make sure you pay attention
to that and understand the not only the
industry regulations
but the regulations for your payment
processor that is why drop shipping
truly is becoming harder and it does
create some problems
if you don't do it correctly okay so
let's dive into the second thing low
budget facebook ads this is making drop
shipping less appealing
and less easy because a lot of people
who start drop shipping do
it because of how easy it is to get into
it's a low startup cost right you're not
buying inventory you might have
50 bucks a month to host your shopify
store and that's pretty much it you know
that's great
it truly is a cool business model
because the low cost i mean you can
i remember when i finally figured it out
and it clicked i mean i still made ten
thousand the next one twenty thousand in
profit
the next month forty thousand i mean my
life changed in a matter of
months months most businesses take
years to get to the point where they're
even profitable you know brick and
mortar businesses so it's
it's a huge opportunity but from a
marketing perspective
low budget facebook ads are gonna start
to present you with some issues so
let's say you're running some ad sets at
three dollars a day at five dollars a
day
you're probably gonna have a hard time
getting them to optimize consistently
because there's no breathing room for
facebook
and everything with marketing is all
about fluctuation and change in the
metrics
so especially with facebook your cost
per purchase let's say it's seven
dollars right
they're charging you seven bucks to get
a purchase basically it's not gonna be
seven dollars exactly every single day
it'll be six twenty five forty seven six
sixty
seven twelve eight nine like eight
ninety it'll move a little bit usually
by like 20
like day over day right it'll it'll
slowly move depending on how much stuff
you have running because it'll become
like a closer average
but regardless it needs room to optimize
so
now facebook and this used to work great
i used to run a lot of 5
ad sets now i will never run a five
dollar a day ad said i haven't done it
like a year
i start at 10 usually i'm going at 20
it's just to give a little bit more
working room for facebook
so what will happen if you do decide to
go with a lower budget
your ad set will probably perform for a
few days you know if you're starting to
get sales maybe it does maybe it doesn't
but if it does start to get sales it's
likely to die off
if it's on a low budget so a lot of
people start to ask me hey
why is my ad set doing well and then now
it's not producing sales
because let's say you had a good run for
four days and you made a few bucks
but now it's terrible for the next five
and you don't want to turn it off
because it had done well
you're hoping it'll come back right
fingers crossed but you don't know and
you don't know what the problem is it's
probably because
it's on a low budget so there's not
really a lot of room for facebook to
optimize
and this can actually work against you
in the long run so facebook
will actually start to not favorite you
as an advertiser
and this is just a conspiracy uh
conspiracy theory that i have
facebook definitely favorites some
people they favor you based on your
budget
based on your feedback score based off
the amount of engagement on your post
based off the amount of likes in
comparison to the views
they want to see all those positive
metrics it's the same thing with youtube
they might never admit it but i
guarantee
you it does play a role in how much
organic reach you can have
i've seen that impact my ad spend in
comparison to results
at a high level right i've seen it work
in my favor and i've also had it work
against me
and so you know that's just my belief
but they will start to limit your
organic reach your cost might start
creeping upwards okay
now with cbo's campaign budget
optimization they will probably not be
your friend at a low budget i have never
and will never run a twenty thirty
dollar
a ten or 20 a day cbo the only cbo that
i have
run in terms of a low low budget and
this was just for a testing purpose
was 30 a day okay and the reason behind
that
my breakdown for it is if i'm running
ten dollar day ad sets
i want to get at least three of those
working and then i will put those three
into a cbo with what's called an
equivalent budget
so if you have three ad sets each at ten
a day what's the total spent
thirty dollars so you duplicate those
three into a cbo you can do a 30
cbo i normally like to start at 100 with
at least
three ad sets just to give facebook more
room but if you're working on a limited
budget
you might be able to slide by with 30. i
did just notike that it worked well for
a while and then it would die
off so just keep that in mind you
probably should stik with ad set
budgets until you can run a 50 or 100
a day cbo at least i kind of consider
100 my minimum
there's some things i do where i'll run
them at a lower budget like 75
if it's not working at 100 but um you
know i usually try to keep a slightly
higher budget
just to keep facebook optimizing in my
favor okay so
that's kind of my strategy with facebook
a little bit of an insight on the low
budget side of things
which is moving away i mean when i was
first starting facebook ads
three and a half years ago because i
spent a year or so doing instagram
influencers before that
well facebook was so i mean i wish i
knew now when i knew that i would have
been making stupid amounts of money
but the five dollar a day ad sets would
work like a charm
and they worked like a charm for a while
but everything changes i might be coming
back to you in a year saying something
different about the budget and i
almost guarantee i will because things
change and you have to be able to adapt
so what used to work for me doesn't work
for me so i changed it
right so i would highly recommend
staying away from super low budget ones
and that's why drop shipping in itself
um is kind of a dying space i feel like
a lot less people are getting into it
because they either wait until they have
the capital to do something a little bit
more legit
or they're just turned off by the fact
of it because of all the new
restrictions and regulations maybe they
tried it and then had a problem
you know you can definitely get shut
down five different ways you know you
steal
like the old strategy stealing someone
else's video ad boom now you're going to
get a dmca take down notike and they're
going to shut down your shopify store
within 24 hours it happens all the time
i see people ask me hey how do i get my
shopify store back
i'm like dude you don't so you just have
to be careful
i do recommend just kind of planning
this out you know a lot of people just
impulse jump into doing e-commerce
especially with drop shipping
because of how low of an entry point it
is i would recommend making a plan
i would recommend ordering the product
filming your own video put some more
effort into it
make sure you have a good supplier speak
to them on the phone figure out the
shipping times
do some test orders right get the
product look at the packaging look at
the product quality
just some basic stuff that really won't
cost you a lot of money it might just
cost you a little bit of time
it will be worth it in the long run
because you don't want to invest
especially you have a low budget
all your money into something that then
flops you know that's not a good move
so it's better to take the time to plan
it out and just make sure that you're
doing the right thing so i hope this
video gave you some insight if it did
make sure to smash a like down below if
you have any questions at all
let me know in the comment section i
would love to make some more videos
breaking this stuff down or just answer
you in the comments section directly
if you want some more help you want to
see how i do ecommerce and how i run my
facebook ads
at a high seven figure a month level in
sales make sure to check out the program
linked in the description if you want us
to build you a shopify store
pre-loaded with winning products so that
you can just focus on running the
company
and running your ads we also have that
service which is primarily something we
offer for clients inside of our
advertising agency ecom season
but that is something we've extended to
as of right now
offering 20 to 30 slots every single
week
for custom-built shopify stores so
that's something we're kind of doing to
try to give back
help people get into this industry in
the right way so they can at least lead
off
in the right direction from the first
try you know you don't want to have some
issues so
hopefully this helped you out again i
really appreciate if you guys smash a
like down below if you have questions
let me know and i'll be seeing you in
the next video peace

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